TIDMTW.
RNS Number : 5906E
Taylor Wimpey PLC
09 November 2020
This announcement contains inside information.
9 November 2020
Taylor Wimpey plc
Trading statement
Overview
Pete Redfern, Chief Executive, commented:
"The safety of our colleagues, customers, suppliers and
subcontractors remains our priority and I am extremely proud of the
resilience and commitment shown by our teams. We are now safely
operating at close to normal capacity with a product profile well
positioned to meet customer demand. Our excellent customer and
construction quality scores reflect our drive to deliver a high
quality product and service to customers, in a responsible
manner.
The trading backdrop remains resilient and the quick recovery of
the housing market is testament to the underlying strength of
demand and supportive lending backdrop.
We have made good progress in the second half of the year to
date, maintaining a robust sales rate and building a strong forward
order book. Looking ahead, we are on track to deliver full year
2020 results towards the upper end of market expectations and with
strong operational momentum and positive forward indicators, our
confidence in 2021 has increased. As a result, assuming the market
remains broadly stable, we expect to deliver 2021 operating profit
materially above the top end of the current consensus range."
UK market backdrop and trading performance
The housing market has recovered well since reopening after the
second quarter shutdown and, despite the wider uncertainty,
underlying demand continues to be resilient, supported by very low
interest rates. Customers have benefited from the short term
extension to the current phase of the Government's Help to Buy
scheme and the Stamp Duty Land Tax holiday.
We have continued to operate through a pre-booked appointments
model and have achieved a good sales rate of 0.76 homes per outlet
per week in the second half of the year to date (2019: 0.93) and
0.73 homes per outlet per week for the year to date (2019: 0.97).
On many sites, we are selling today for completions in Q2 2021 and
beyond, and as construction catches up with sales over the next few
months, we expect rates to improve further.
Cancellation rates for the year to date have continued to reduce
but still remain slightly above normal levels at around 20% over
recent weeks (2019: 15%). We operated on an average of 239 outlets
(2019: 252) and have opened 56 outlets in the year to date.
Customer forward indicators and sales have remained strong. Our
current total order book, excluding joint ventures, represents
11,530 homes (2019: 10,486) as at 1 November 2020, giving us
ongoing confidence in our ability to manage short term market
uncertainty and price. The order book stands at c.GBP3.0 billion
(2019: c.GBP2.7 billion), an increase of 11%, with private average
selling price in the order book ahead of 2019 levels. We are
working to transition to the next phase of Help to Buy with Homes
England and therefore the order book and sales rate do not include
reservations against this scheme.
Operating backdrop
The UK Government has confirmed that the housing market should
remain open for business, during the period of new restrictions in
England, operating in a COVID-secure way, and construction is
encouraged to continue. This has enabled us to keep our
construction sites fully open, continue to hold customer
appointments in our sales centres and show homes, and progress
customer service work in customers' homes, in a responsible manner.
The early signs suggest that customers wish to continue to progress
purchases, with forward sales indicators at healthy levels, whilst
our outlet and product profile is well positioned to meet increased
customer demand for well designed homes in quality locations with
good community amenities.
All sites continue to operate within COVID-secure guidelines,
and through the second half, we have focused on removing
bottlenecks to increase construction pace without compromising on
safety or quality. At present, the majority of our sites are
operating at or near normal construction pace and we do not expect
this to be adversely affected by the new restrictions.
In the last few years, we have focused on strengthening our
business for the long term by enhancing build quality, increasing
our production capacity and improving customer service. We are
pleased to see the ongoing results of this in a Construction
Quality Review** score of 4.37 for the year to date (FY 2019:
4.13). We are confident of returning to a 5 star rating in the
current customer care year, and are particularly pleased that
customer feedback and scores since the lockdown have been very
positive.
We are pleased to have been recognised by our employees via
Glassdoor for our leadership during the pandemic. Our approach has
enabled us to accommodate recent restrictions, both local and
national, without meaningful disruption to production plans and
with the support of our employee and subcontractor base.
Increased land buying at attractive returns
As a result of the equity raise in June, we were able to
confidently and assertively re-enter the land market at the end of
Q2 and take advantage of increased opportunities. Since then, we
have agreed terms on and authorised c.GBP826 million of gross land
purchases, comprising 70 sites and c.14,500 plots. This is
significantly ahead of our normal rate of acquisition. These sites
have been secured at attractive returns in line with our medium
term operating margin (*) target of 21-22% and with an average
return on capital employed (*) of c.34%. Combined with the strength
of our underlying landbank, these sites give us increased
confidence of delivering our medium term operating margin target
and will enable us to accelerate our volume growth from 2023
onwards.
These sites have a broad geographic coverage and range of sizes
(with an average of 207 plots per site) and include an increased
number of smaller sites compared to purchases in recent years. This
will enable us to continue to increase our outlet numbers with a
better balance of both large and small sites, in line with our
strategy outlined at our 2019 full year results.
We expect to invest significantly in additional land through the
next 12 months which, together with the land spend already
committed, will lead to outlet growth during late 2022 and 2023.
This growth will be achieved within the existing business footprint
and without the need to open new regional offices.
As at the end of October 2020, our short term landbank stood at
c.78k plots (28 June 2020: c.77k) and our strategic land pipeline
at c.137k potential plots (28 June 2020: c.138k). As incremental
acquisitions come onto the balance sheet, we expect to see our land
position grow by around 10k plots over the next 12-18 months as we
target increased production of homes.
Improving efficiency and returns
Our primary performance focus is on returning the business to
21-22% operating margin and we continue to target a number of areas
to achieve this; focused on cost, process simplification and
enhancing the core drivers of value for our business. In addition
to cost reduction and management programmes already in place, we
have also undertaken a detailed review of our organisational and
cost structure to ensure that we continue to operate efficiently in
a changing market.
Following this review, we have either implemented or are in
consultation on a series of proposed changes that would generate
annualised savings in the region of GBP15 million from 2021, with
the costs to achieve these of GBP10 million largely incurred in
2020. These changes include the removal of one tier of operational
management, a rationalisation of our London operating structure to
focus on affordable price points that meet the affordability needs
of Londoners, and a series of reductions in central and business
unit overhead levels. These proposed changes would not affect the
ability of the business to generate future growth or to deliver a
high quality product and service to our customers. Operating
through the challenges of the last six months has also highlighted
opportunities for ongoing efficiency and performance improvement,
as our recent investments in systems and processes have performed
well.
Spain trading performance
The Spanish second-home housing market has been inevitably
impacted by COVID-19 restrictions on travel in 2020. The order book
for our Spanish business stands at 186 homes as at 1 November 2020
(2019: 296 homes). We have continued to build and sell in Spain,
albeit at lower rates, and would expect to see the business start
to normalise next year as foreign travel resumes, with a return to
normal operations in 2022.
Group financial position
We have a strong balance sheet and cashflow. We expect to end
2020 with a net cash*** balance towards the upper end of our
guidance of between GBP550 million and GBP750 million (31 December
2019: GBP545.7 million), subject to the timing of conditional land
purchases. Land creditors are expected to run above normal levels
over the next 24 months as additional capital is committed and
gradually paid out.
As previously stated, we expect to recommence ordinary dividend
payments in 2021, starting with the payment of the 2020 final
dividend. We will review the special dividend in 2021 for payment
in 2022.
Outlook
The quick recovery of the housing market in the second half of
this year, ahead of expectations, is evidence of the underlying
strength of demand and the importance of low interest rates and
stable mortgage lending. Whilst our volume expectations for the
year remain unchanged, we have made good progress in improving
performance whilst operating to COVID-secure guidelines and are on
track to deliver full year 2020 results towards the upper end of
market expectations****.
Looking ahead, we expect the market to support robust sales
rates and for prices of new build homes to remain supportive. We
are pleased to note the Government's ongoing support for the
housing market, home ownership and, specifically, first time
buyers.
Against this backdrop, and recognising the strong operational
momentum in the business as we return to normal operations, our
confidence in 2021 performance has increased since our July update.
With our sites operating at or near to normal capacity and with a
strong order book and resilient customer demand we now expect 2021
completions to be between 85-90% of 2019 levels.
In addition to a stronger volume performance we also expect our
ongoing focus on cost and efficiency, strong embedded margin in the
landbank and supportive market pricing to benefit the Group's 2021
operating margin performance. Assuming the market remains broadly
stable, we therefore currently expect to deliver operating profit*
in 2021 materially above the top end of the current consensus range
.
The Group has a robust balance sheet and a growing high-quality
landbank, which will enable us to grow the business whilst
generating compelling returns. With a renewed focus on costs and
efficiency the Board believes the Company is well positioned for
strong progress and to deliver enhanced shareholder value in the
years ahead.
* Operating profit is defined as profit on ordinary activities
before net finance costs, exceptional items and tax, after share of
results of joint ventures.
* Operating margin is defined as operating profit divided by
revenue
** The NHBC Construction Quality Review is an average score, out
of six, achieved during an in-depth annual review of construction
quality on a site-specific basis. The score presented is based on
an internal average of the third-party, independent Construction
Quality Review scores in the year to date
* Return on capital employed is defined as rolling 12 months
operating profit or loss divided by the average capital employed
calculated on a monthly basis over the period
*** Net cash is defined as total cash less total financing
**** The current company compiled consensus expectation for 2020
is for operating profit of GBP270 million (range: GBP242 million to
GBP292 million)
The current company compiled consensus expectation for 2021 is
for operating profit in the range of GBP359 million to GBP626
million
Note:
2019 relates to 2019 equivalent trading period, unless
stated.
-Ends-
Chief Executive Pete Redfern and Group Finance Director Chris
Carney will be hosting a conference call for analysts and investors
at 9.00am this morning. The details are as follows:
Dial in: +44 (0) 2071 928338
Passcode: 9993596
A recording of the call will be available on our website later
today.
For further information please contact:
Taylor Wimpey plc Tel: +44 (0) 7826 874 461
Pete Redfern, Chief Executive
Chris Carney, Group Finance Director
Debbie Archibald, Investor Relations
Finsbury TaylorWimpey@Finsbury.com
Faeth Birch
Anjali Unnikrishnan
The person responsible for releasing this announcement is Alice
Marsden, Group General Counsel and Company Secretary.
Notes to editors:
Taylor Wimpey plc is a customer-focused homebuilder, operating
at a local level from 24 regional businesses across the UK. We also
have operations in Spain.
For further information please visit the Group's website:
www.taylorwimpey.co.uk
Follow us on Twitter @TaylorWimpeyplc
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END
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